SECURITIES AND EXCHANGE COMMISSION
BOSTON, MASSACHUSETTS
LITIGATION RELEASE NO. 16012 / December 30, 1998
SECURITIES AND EXCHANGE COMMISSION V. TODD J. LOSCOLA, CPI
INVESTMENT MANAGEMENT, INC. AND CPA ADVISORS NETWORK, INC (United
States District Court for the District of Rhode Island, Civil
Action 98-610L (December 29, 1998)
The Securities and Exchange Commission announced that on
December 29, 1998, Judge Ernest Torres of the federal district
court in Rhode Island ordered emergency relief against Todd
LaScola, CPI Investment Management, Inc. ("CPI") an investment
adviser, and CPA Network Advisors, Inc. ("CPA") a brokerage firm,
for engaging in a series of unauthorized transactions exposing
both advisory clients and brokerage customers to large losses and
for engaging in misappropriation of advisory client funds.
LaScola, a resident of Warwick, Rhode Island is a principal and a
co-owner of CPA and is the sole owner of CPI. The Complaint
alleges that, through CPA and CPI, LaScola has defrauded dozens
of brokerage customers and advisory clients by diverting more
than $6 million from their brokerage accounts in order to repay
another client. Specifically, the Complaint alleges that LaScola
diverted the funds in order to repay the International
Brotherhood of Electrical Workers ("IBEW") for his illegal
purchase in their account of nearly $6 million of highly
speculative and illiquid promissory notes. Judge Torres
temporarily restrained LaScola, CPI and CPA from engaging in
further fraudulent conduct, froze the assets of LaScola and CPI
and appointed a Temporary Receiver for CPI.
The Complaint alleges that when the IBEW learned about the
investment in the notes in November 1998, it demanded that
LaScola immediately sell the notes or it would file a lawsuit
against him. LaScola could not find buyers for these illiquid
notes in part because some of them were in default. LaScola
through CPA and CPI caused brokerage customers and advisory
clients to purchase approximately $2 million of the notes without
their knowledge or consent. The Complaint further alleges that in
order to cover the $4 million balance, LaScola transferred $4
million of customers’ or clients’ funds to the IBEW and
misrepresented to those individuals that they had been issued the
notes, when in fact no notes have been issued in their names. The
Complaint alleges that in order to facilitate the return of the
IBEW money, LaScola, using a CPA computer system, converted
several of his advisory clients’ as well as several brokerage
customers’ cash accounts into margin accounts without their
permission and obtained large margin loans. Due to the improper
margin loans, investors are at risk of losing several million
dollars. When questioned concerning the transactions, LaScola
falsely told the customers and clients that the purchases were
made in error.
The Complaint alleges that LaScola also misappropriated
$200,000 from an advisory client, and diverted another $127,000
from one client to another to hide the fact that he had
previously dissipated the account to repay the IBEW.
The Commission alleges that all of the defendants violated
Section 17(a) of the Securities Act of 1933, Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder and
alleges that LaScola and CPI violated Sections 206(1) and (2) of
the Investment Advisers Act of 1940. In addition to the relief
already granted, the Complaint seeks a permanent injunction,
disgorgement and civil penalties.
The Commission would like to acknowledge the cooperation and
assistance of the Rhode Island State Department of Business
Regulation, Securities Division in the investigation of this
matter. On December 24, 1998, in separate actions, the
Department temporarily suspended the state licenses LaScola, CPI
and CPA. The investigation into this matter continues.
Please contact Juan Marcel Marcelino, the District
Administrator of the Commission's Boston District Office, at
(617) 424-5934.